Essentially, when this news broke yesterday, some short sellers closed their positions on Bitfinex, and closing a short position inherently requires buying Bitcoin. As shorts closed, Bitcoin’s price began to rise, causing more shorts to close, and so on and so on until Bitcoin had risen nearly $300.

The gains from the short squeeze rally are slowly being lost, and it is possible that Bitcoin will cross back below the $3,900 resistance level.

If the market was favorable for a rally, the short squeeze on Jan. 6 should have been enough to initiate it, but it seems there is strong downward pressure overall.

The latest CME futures expiration was Dec. 28. In the below Bitcoin price chart, that expiration is quite visible with a sudden crash right before expiration, which is likely “banging the close,” in which futures traders crash the spot price of an asset right before expiration to increase short profits.

After the expiration, Bitcoin was near $3,900, and this is possibly where CME Bitcoin futures traders took out short positions, especially since it was a strong resistance level that was approached but not breached through Jan. 5.

The short squeeze did break the $3,900 resistance level, but if CME Bitcoin futures traders truly did short from $3,900, it would be expected that Bitcoin will again drop below $3,900.

Other Major Cryptocurrencies Generally Declining More Steeply Than Bitcoin

Today is certainly a down day for Bitcoin, but other cryptocurrencies seem to be doing worse. The total cryptocurrency market cap has declined $3 billion today. This has been led by Ethereum (ETH) which is down 4 percent to $151, Bitcoin Cash (BCH) which is down 3.5 percent to $161, EOS which is down 4 percent to $2.76, and Litecoin (LTC) which is down 4 percent to $37.70.

Today’s Litecoin (LTC) and Ethereum (ETH) losses follow a month of serious gains. Litecoin (LTC) is up $14 (58 percent) and Ethereum (ETH) is up $70 (84 percent) in the past month.

The debate over the cause of the 51 percent attack, which may have been ETHash ASICs, has led to an outcry in the Ethereum community to ban ASICs in the Constantinople hard fork. The fork is less than 10 days away, and perhaps this is the beginning of a long battle in the Ethereum space between miners and developers. Ethereum Classic (ETC) will likely see heavy losses in the short term, and Ethereum (ETH) may be dragged lower with it.

The next day may see more losses for Bitcoin and other major cryptocurrencies if Bitcoin heads back to the $3,900 resistance level and below, the level where CME Bitcoin futures traders possibly took out shorts.